Make parts of body mesh go through clothing mesh during simulation?
I figured it out. What you gotta do is separate the mesh into parts that you want to keep as collision objects and those you don't. So, in my case, it was simply separating the lower arms from the rest of the body but still having them work together as part of the same armature. After that I removed the collision modifier and hid (H key) the lower arms which hides them from 3D view but not render view. So, the animation render looks the same but the arms pass through the skirt mesh the way I want.